Navigating Superannuation Inheritance: Understanding Death Benefits and Tax Implications

Benjamin Franklin once quoted that “Nothing is certain except death and taxes”. In the case of Super death benefits, both matters certainly ring true.

Mother and daughter. Navigating Superannuation Inheritance: Understanding Death Benefits and Tax Implications

How tax applies

When a person dies, in most cases their superannuation provider pays their death benefit to their nominated beneficiary. How these benefits are taxed is dependent upon the following:

  • Whether you were a dependent of the deceased under ‘Taxation Law’
  • Whether the benefits are paid as a lump sum or via an income stream
  • Whether the components of the superannuation being paid out is tax-free or taxable
  • Your age and the age of the deceased person when they died

Superannuation Law and Taxation Law

Different rules also exist on who is considered a ‘dependant’ when making a super death benefit payment (Superannuation Law) and the resulting tax treatment (Taxation Law) of these benefits. These distinctions are illustrated on the table below.

Dependants under Superannuation Law Dependants under Taxation Law
– Spouse or De Facto spouse (But NOT former spouses)– Spouse or De Facto Spouse (of any sex)
– A former spouse or de facto spouse (of any sex)
– A child of the deceased (Any age)– A child of the deceased under 18 years old
– A person in an interdependency relationship with the deceased– In an interdependency relation with the deceased
– Any other person dependant on the deceased

Key to reducing tax on death benefits

There are various ways to reduce and eliminate paying tax on death benefits. The following are worth considering:

  • Ensuring you nominate a beneficiary that qualifies as a dependent for income tax purposes at the time of death
  • Increasing the tax-free component of your superannuation

There are countless factors to consider when addressing super death benefits. Seeking professional advice is the best way to ensure you reduce or even eliminate the tax on your death benefits. Please feel free to contact us today to find out more.



Helpful links:

If your Death Benefits are to be paid to a death benefits dependant for tax purposes:

https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Withdrawing-your-super-and-paying-tax/?page=6#Ifyouareadependantofthedeceased

If your Death Benefits are not to be paid to a death benefits dependant for tax purposes:

https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Withdrawing-your-super-and-paying-tax/?page=6#Ifyouarenotadependantofthedeceased


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